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6 minutes ago, Bontekoe said:

If the peso is devalued, and you have invested in a Mexican bank  i think you will be SOL, It happened to me many years ago.

I do not invest through a Mexican Bank!

 

I knew several people who thought they would get filthy rich doing exactly that during that era.  CRASH.  If a thing sounds too good to be true...............etc. I agree.  Keep nothing more in Mexican banks than you can afford to..........lose.

Next issue:  What if the Fed causes our "safe" U.S. investments to drop to less than zero interest?  Don't laugh.  It's been discussed as a possibility on the financial news. Just what old folks need, eh? I doubt very much that's reality-based, though.

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1 hour ago, monadog said:

What does everyone think  the Mexican gov. would do, if the peso went up to 25 to 30 to one or more? What affect would this have on money deposited and or invested in a Mexican bank.   

If the peso went down to 25 to 30 per USD.

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3 hours ago, el bartman said:

That's why homes here are valued by foreigners in USD, it's a viable edge against pesos devaluation.   Of course there are other sales factor variables to consider.

Home prices might be quoted in U.S. dollars, but they are still registered in pesos on transfer documents. USD is solely for the convenience of those who can't be bothered to figure out the daily exchange rate. The only "edge" is if the buyer pays from their foreign-located bank directly into your foreign-located bank (after you cover local fees, commissions, etc.)

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  • 2 weeks later...
On 7/27/2016 at 4:31 PM, monadog said:

What does everyone think  the Mexican gov. would do, if the peso went up to 25 to 30 to one or more? What affect would this have on money deposited and or invested in a Mexican bank.   


Interesting question,  especially as the MXN peso has strengthened by 2% this week ... to $18.25 today.

Reality:  The Mexican Government would do   ~ nothing ~   if the MXN peso weakened to  $25 or $30 .

Why would the MXN govt officially devalue the peso?

Historically,  the MXN peso has only been devalued when the MXN peso values have fallen by 100000% or so.  (1000X weakening)

If the peso moves to $25 .... that's a minor minor weakening compared to the previous devaluation points.

The crucial point is that there really are no significant benefits to devaluation if the peso weakens to $25  to $1 USD...

Saying it another way:   It's no big deal that there's another zero in computer records .... ;) 


~ unless you're trying to pay your bills with centavo coins ~

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3 hours ago, bigd said:

Snowyco, what would you call what the Mexican government did to the peso in December  1994? Was that just a market adjustment? I had a few construction projects in progress and  contracted with peso prior to December.   


Great!
You have made my point exactly - Dec. 1994, when the Gob. devalued the MXN peso by 100,000.00%     (a 1,000X  devaluation).

Monadog asked about a proposed fairly  minor  loss of MXN peso value  to just $25 or $30 MXN pesos per US dollar,
which simply does not necessitate nor approach the 1982 & 1994 devaluations.

BigD is talking about a 1,000X devaluation,   versus Monadog's imagined idea that there  might  be a devaluation if the peso weakens to $25,

while the last 6 months of reality show a modestly stable MXN peso ... which proves is no need   nor justification  for a  1,000X devaluation.

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On 7/27/2016 at 4:31 PM, monadog said:

What does everyone think  the Mexican gov. would do, if the peso went up to 25 to 30 to one or more?
What affect would this have on money deposited and or invested in a Mexican bank.   


Another way to answer monadog's 2 questions:  

Note that the Mexican Govt central bank has been buying MXN pesos fairly aggressively to hold the MXN peso below $19.

What does everyone think  the Mexican gov. would do, if the peso went up to 25 to 30 to one or more?
If something radical happened (like oil falling to $15 a barrel),   we could expect the Mexican Gob. to stay on the same course,  using their substantial foreign currency reserves to hold the peso at $25.


What affect would this have on money deposited and or invested in a Mexican bank.   
1.   If something radical happened (like oil falling to $15 a barrel),    then people with US dollar denominated Mexican bank accounts would be cheering, because their US dollars on deposit at a Mexican bank would be worth almost 50% more pesos.

2.  For people with who have MXN peso denominated accounts at Mexican banks,  they would have the same number of pesos.   (no Govt. devaluation)

3.  Those MXN pesos in our bank accounts would still buy a dozen eggs,   a bag of rice,   and a bag of beans    for about the same amount...   for a while...

4.  Gringos   who buy imported goods   with their bank-deposited MXN pesos,  would find their imported goods (like Costco stuff) would cost 50% more MXN pesos, than now.

 

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Other Recent Realities:
The MXN peso has weakened by exactly 40% since it was down at $13 ...

What price changes have we seen since then?

Eggs, beans, rice and other staples prices have crept up.

Imported Costco goods had their prices jump...

Surprisingly, cheap Chinese goods like cheap TVs and cheap airconditioners  have not gone up that much...

******************************
Have people's   rent prices   jumped by 40% ??

Have other Mexican costs of living  jumped by 40%  from when the MXN peso was at  $13 ?

Have real estate values jumped by 40% since the MXN peso was at $13  just 2 years ago?

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In what way could the Mexican government officially devalue the peso when its value already floats and is not fixed against any other currency? The introduction of the new peso in 1994 was not a devaluation in any real sense, it was just the introduction of new coinage and notes to eliminate the nuisance of having to tack three zeros onto all amounts. 

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Exactly!

Since it is not pegged to any other currency the only possible way for the "government " to devalue it would be for them to SELL pesos which I'd like to hear a story of how that might happen. The peso gets stronger or weaker every single day that it trades freely. Willing buyers and sellers decide iits worth so even the Mexican government cannot buy enough pesos to force it higher versus the USD.

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There would be a backlash against Mexico since currency devaluation affects trade, and unfavorable to Mexico's trading partners. And it will kill the consumers here in Mexico since a lot of stuff is imported into Mexico, namely crude oil from the US. The Mexican crude is so sour, that Pemex has to trade oil with the US to blend with it so they can refine it. The US is happy to have the sour crude as the Gulf Coast refiners can refine it. It isn't as bad as Venezuela crude and now they don't have the money to buy US sweet crude to blend with their even sourer crude.

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3 hours ago, carcamal said:

In what way could the Mexican government officially devalue the peso when its value already floats and is not fixed against any other currency?
The introduction of the new peso in 1994 was not a devaluation in any real sense,
it was just the introduction of new coinage and notes to eliminate the nuisance of having to tack three zeros onto all amounts. 

.
"The introduction of the new peso in 1994 was not a devaluation in any real sense, "

This is simply not true.

Just as there was a 1982 debt crisis in Mexican Govt finances,  there was a huge $49 billion dollar debt crisis in Dec, 1994, with just $6 billion in Govt assets,   leaving a minimum guaranteed shortfall of $43 billion owed ... to outside creditors.

Official reports describe  how   and   why   the Mexican Government devalued the peso:
" Mexico’s current account deficit, which ballooned from $6 billion in 1989 to $15 billion in 1991 and to more than $20 billion in 1992 and 1993. "

The Mexican debt crisis continued to spiral downward through 1994. until
" Robert J. Barro (1995) and the editors of the Wall Street Journal (December 28, 1994, A12), argue that even as late as November, the government could have avoided  devaluation  by tightening monetary policy ... (which)  would have slowed the already sluggish Mexican economy. "

By late 1994 "the Mexican government’s access to credit markets dried up ... Nearly $10 billion worth of tesobonos were slated to mature in the first quarter of 1995, and another $19 billion was due before the end of the year (IMF 1995, 61). Yet Mexican reserves were down to about $6 billion."

The Mexican government had over $20 billion of prior debt owed to outside creditors,  plus another $29 billion of fresh tesobonos debt,  and only had $6 billion in assets to cover the $49 billion total of Government debt,    The 1994 crushing debt crisis forced the Mexican government to   devalue   the peso by one thousand fold.

https://www.frbatlanta.org/-/media/Documents/filelegacydocs/Jwhi811.pdf



This is why many middle class Mexicans who lost almost everything they had deposited in Peso denominated bank accounts are hesitant to keep too much in Mexican banks.

It is far safer for poorer people to 'invest' in gold items,  and for middle class Mexicans to invest in land (especially since property taxes and upkeep costs are fabulously low).

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The elephant in the room in this whole discussion is whether the MXN peso will remain modestly stable,  or whether the US Dollar is poised to become stronger  ....  making the MXN peso weaken by another  HYPOTHESIZED 50% loss.

Is the MXN peso really poised for another 40% - 50% fall to $25 pesos to the dollar?

Modern life with the internet offers some tasty insights into the health of the Mexican economy vs the US economy.

Ignore the talking heads of  Big Media   (the 5 giant companies who control 95% of what we watch, read and hear in the press), and consider these facts about the last 2 years of US economy:

=========================================
Macy's, Kohl's, and pretty much all big retailers are selling less consumer goods (year on year) this summer...  

~ US Consumer spending is down,  which is a big deal, because consumer spending is what has driven the US economy for the last 6 years.

~  Consumer confidence (plans to spend)  has gone... flat...


~  US Factory orders (M3) have been DOWN for 14 of the last 20 months.... all dropping typically 1% to 2% per month  
with May, June, July 2016 down in succession.


If we expand out to 2 years:  US factory orders are  down 16 out of 24 months  => NOT GOOD for future US dollar values....

~  US GDP - "YEAR on YEAR" values... have been declining steadily - 24 straight months....    
....... 24 months of real US GDP declines (not the bogus 'seasonally adjusted' GDP values reported by Big Media 
=> serious recession approaching?


~  US businesses continue to hoard their cash .. NOT borrowing...   NOT investing in growth...  even though Fed interest rates are near ZERO. ....  cheap cheap money should be fueling NEW investment by US businesses

~ 2 years of low investment in new products or new equipment by US business points to ... a lack of confidence in the future....  ... and low business investment points to a weaker US economy for years.

~  Brexit is moving forward ...  as Great Britian leaves the EU,   the US economy will likely suffer...  suffering more on broad levels, than the small bump/goosing the US stock markets will get from British & EU capital fleeing to Wall Street investments.

Hint:  Wall Street stock prices going up (due to foreign $$ looking for shelter)  does NOT drive the health of the US economy.

=============================

~ China's economy has been more and more sluggish... with growth falling to the lowest levels in 20 years ... as the Chinese government works to build their internal  consumer  economy.... in attempts to to reduce their exposure to the problems of trying to maintain high exports.

~ European & British economic outlooks look even weaker ...

~ Turkey and Syria are tanking the Middle East economies...

~  US Manufacturing inventories are down  substantially ...  indicating significant uncertainty in the US economic future by smart businesses...   serious losses of confidence in US's economic health ... in the minds of manufacturers

=============================
Here's a BIGGIE
~   S&P US Industrial companies'   Stock Price  to  Actual Valuation   ratios
have been increasing the last 2 years...  to scary-high, unstable levels

These key    Stock Price to Valuation ratio   levels ... have NOW hit   the same unrealistically high levels that the dot .com bubble companies   hit just before the  dot. com bubble   ~ burst ~    

This  points to a stock market that has irrationally run up prices  to unstable ... unsupported  levels for USA's   manufacturing companies.


====================

~ US households home finances are at their weakest since WW2...

~  CBS Marketwatch reports that US households are in financially risky spots -
Over 50% of Americans are just 1 lost /  missing paycheck from financial ruin   +   65% of Americans cannot afford a single unexpected $500 car repair or medical bill ...

Can US consumer spending really rescue the sliding US economy ... when over 50% of US households have NO savings... no reserves?

================================================

US GDP increases are down to just 1,2% ...   weak weak weak ....  

~ yet... US investors are demanding high yields  ....  as last year's  average 13% investment yields  ... is causing investors to greedily expect ... and demand  13% - 15% higher yields this year ... and in 2017....  driving the big market players into ever riskier  investments   (which explains the USA's  S&P Industrial company  stock price-to-valuation  ratios     increases   to  pre- dot.combubble  levels....

Social Security has MORE workers than ever paying "IN" ...yet... in 2010,  for the first time ever,    Social Security has paid out more than it took in....

This meant  Obama & Congress     could no longer 'borrow' from the Social Security 'trust funds' to 'reduce' the defict  ... because there was no money in the trust funds ..... none.

That same  never-before-seen  Social Security   ~paying out more than it collected ~   (even as there were more workers than ever paying IN) ....    has happened    every year since 2010....  at levels of $25 billion to $74 billion a year in real net Social Security trust fund 'losses' ...

Under the current projections & condition,   the Social Security funds will   never again    collect more $$ than it pays out..
.
Hint:  Why are Obama, Clinton and Big Media    saying nothing   about all of this ??
 

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Consider those last 2 years of  20 indicators steadily pointing of a weak-to-poor future for the US economy ...  

and then explain how or why the US economy's likely-future stumbling... is going to magically make the US dollar get 40% stronger?

It may be time to hunker down ?

.
especially since USA's manufacturing & industrial companies ... now officially have inflated stock prices equal to the 1990's  dot .com  shell  -bubble-  companies ...  

as  Wall Street gamblers are running bullishly wild ... temporarily fueled by foreign money escaping Brexit, Gulf State, & EU woes.

 

 

 

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Looking back over what I explained above, some readers could become concerned about a possible crash, which might be a remote possibility,  

but the signs look more like the dot .com bubble  bursting,  triggering a recession  

which would point to   future US dollar weakening...  which can drag down MXN peso values.

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22 hours ago, snowyco said:

.
"The introduction of the new peso in 1994 was not a devaluation in any real sense, "

This is simply not true.

Just as there was a 1982 debt crisis in Mexican Govt finances,  there was a huge $49 billion dollar debt crisis in Dec, 1994, with just $6 billion in Govt assets,   leaving a minimum guaranteed shortfall of $43 billion owed ... to outside creditors.

Official reports describe  how   and   why   the Mexican Government devalued the peso:
" Mexico’s current account deficit, which ballooned from $6 billion in 1989 to $15 billion in 1991 and to more than $20 billion in 1992 and 1993. "

The Mexican debt crisis continued to spiral downward through 1994. until
" Robert J. Barro (1995) and the editors of the Wall Street Journal (December 28, 1994, A12), argue that even as late as November, the government could have avoided  devaluation  by tightening monetary policy ... (which)  would have slowed the already sluggish Mexican economy. "

By late 1994 "the Mexican government’s access to credit markets dried up ... Nearly $10 billion worth of tesobonos were slated to mature in the first quarter of 1995, and another $19 billion was due before the end of the year (IMF 1995, 61). Yet Mexican reserves were down to about $6 billion."

The Mexican government had over $20 billion of prior debt owed to outside creditors,  plus another $29 billion of fresh tesobonos debt,  and only had $6 billion in assets to cover the $49 billion total of Government debt,    The 1994 crushing debt crisis forced the Mexican government to   devalue   the peso by one thousand fold.

https://www.frbatlanta.org/-/media/Documents/filelegacydocs/Jwhi811.pdf



This is why many middle class Mexicans who lost almost everything they had deposited in Peso denominated bank accounts are hesitant to keep too much in Mexican banks.

It is far safer for poorer people to 'invest' in gold items,  and for middle class Mexicans to invest in land (especially since property taxes and upkeep costs are fabulously low).

You can post all the references to a "devaluation" you want but you can't change the fact that the introduction of the new peso was nothing but a bookkeeping simplification. Did salaried employees suddenly find that they were being paid only 1/1000th in real terms of what they had been earning the day before?

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In 1994 the Mexican government was still trying to force the peso to trade at their "official " rate versus the USD. Whatever that rate was. The reality was that nobody would trade their USD for that rate unless a gun was held to their head. Enter the black market. The government finally gave up and let the peso float so that is why people said they "devalued" the peso but in reality it had been devalued long before by the forces of supply and demand.

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1 hour ago, El Saltos said:

The value of the $MX is effected primarily by the price of oil.  As the price of oil declined so did the value of the Peso.  It's not much more complicated than that.

Without running a study correlating MXN with oil, they certainly seem closely linked, at least in recent years.  The other notable aspect of the MXN is as a widely traded general proxy for other EM currencies, many of which do not trade freely, or only as Non-Deliverable Forward contracts, or are only available to trade by giant firms. (I tried for years to buy RInggit, which is oily and sort of similar to MXN, but never could - good thing, as it turned out...)  

I'm going to go out on a limb here and suggest that anyone who has deployed capital relative to different currencies at least consider opening a 'practice' account with one of several FX houses to see if they could benefit from such a facility.  I first used CitiFX PRO (white shoe, but now closed because of shenanigans at Canary Wharf), and now FXCM to create hedges against my USD holdings and have already bought (for real) enough MXN to pay for a small house at 19 MXN per USD.  Mexico is perhaps poor, but he U.S. is broke.

 

  

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